How could a U.S. shutdown affect Canada?

The U.S. Senate took the first steps Monday afternoon to end the three-day shutdown spurred by a disagreement between Democrats and the Republicans over border security and immigration, agreeing on a short-term spending legislation to reopen the government until Feb. 8.

The shutdown, which comes in the midst of sensitive NAFTA negotiations with Canada, started after funding for government operations expired Friday at midnight.

“These kinds of shutdowns tend to be quite short, this one here would be only one full day of business so (the impact) would be marginal,” explains Walid Hejazi, associate professor of economic analysis and policy at the University of Toronto’s Rotman School of Management. But the longer these sorts of shutdowns last, the more likely they are to have unintended consequences.

“You can imagine how discussions within the NAFTA – which are going on this week – how the shutdown could influence it, I doubt it would have a direct effect but you never know,” says Hejazi.

Initially, the Democrats called on Republicans to address protection for the Dreamers, over 800,000 immigrants brought to the U.S. illegally as children, before approving any short-term funding. The Republicans, on the other hand, held firm, saying they wouldn’t negotiate around immigration until they had the votes to reopen the government.

Given the brevity, Canadians aren’t likely to feel any effect at all, but Hejazi says he wouldn’t be surprised if the U.S. government sees another shutdown in the near future. “This is going to happen again and again and it may become more severe – there’s no reason to think it’s not.”

Small businesses, Canadians paying U.S. taxes in the line of fire

The last shutdown happened in 2013 under the Obama administration, lasted 16 days and saw government employees for non-essential services like National parks workers, off work. This time around, Trump opted to keep parks open.

“We are going to run and are running the shutdown very differently now than the Obama administration ran it in 2013,” White House Budget Director Mick Mulvaney told CBS on Sunday. “The president has told me, ‘Make sure as many people can go to work on Monday as they can. Make sure you use every tool legally available to you to keep as much of the government open.’ And that’s what we’ll do.”

Future shutdowns could see some national museums and parks close in places like Washington, D.C. but Canadians heading south wouldn’t see an issue as border services fall under the essential services status. The U.S. postal service is also considered essential so Canadians sending mail to the U.S. or expecting packages wouldn’t see an interruption.

Visa applications could take longer to process under a shutdown government and any Canadians paying U.S. taxes would have to wait for a restart before getting their refunds or seeing a resolution to any tax rulings they filed before the shutdown.

Businesses working with the U.S. and exporters that would be most likely to feel the impact, says Hejazi. Though that impact would only be apparent in the case of a shutdown lasting more than a couple weeks. Canadian exporters applying for new permits from the U.S. government could also experience delays and screening of goods could be backed up as border services would be working with reduced staff.

Canadian companies also wouldn’t be able to bid on new contracts with the U.S. government while it was shuttered.

The fragility of U.S. governance

While the government is likely to be up and running Tuesday morning once Congress and President Trump have officially signed off for the short-term deal, Hejazi says that the shutdown also hints at the fragility of the U.S. governance process.

“In theory, (the process) should work well but the way it’s actually operating, in practice, is significantly flawed,” he says calling it “the U.S.’s sickness.”

“You never know where this is going to lead but it’s going to help Trump because the earliest consensus is that Trump won this, the Democrats blinked,” says Hejazi. “This is helping Trump advance his agenda on immigration, on trade and I think this is a wake-up call for Canada to grow up and stop being so dependent on the U.S. economy and be more globally diversified.”